Japan joins the odyssey of easing as the Fed’s Bernanke -- a longtime student of Japan and its mistakes during the so- called Lost Decade -- starts to contemplate how the Fed might begin to exit from the policy. The U.K. has positioned the BOE to ease more as Bank of Canada Governor Mark Carney prepares to take over in London. The ECB’s Mario Draghi has pledged to do everything needed to defend the euro while stopping short of embarking on so-called quantitative easing.
The BOJ said it will double the monetary base by the end of 2014 through purchases of government bonds, in Japan’s biggest- ever round of asset purchases. Ten-year Japanese government bond yields fell to a record low of 0.315%, the yen plunged by the most in 1 1/2 years against the dollar and stocks rallied to a 4 1/2-year high, as investors expect Kuroda to revive an economy beset by prices stuck at 1992 levels.
Kuroda’s monetary attack contrasts with predecessor Masaaki Shirakawa, who warned of the dangers of excessive short-term stimulus from his first day on the job, in April 2008. In February this year, former Bank of England board member Adam Posen said that the BOJ’s “passive-aggressive” policies over the last decade contributed to prolonged deflation.
“The change in Japan’s monetary policy is clear,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd., which manages about 6 trillion yen ($62 billion). “They didn’t hesitate to use all of the cards.”
Kuroda, the BOJ’s chief since last month, may be taking his cue from Bernanke, who has flooded the world’s largest economy with money as inflation expectations remain tame. The yield on the benchmark 10-year Treasury note is near a three-month low of 1.756%, down from 2.22% a year ago, as investors sought the safety of U.S. debt.
The governor’s decision was of “historic proportions,” said Nathan Sheets, former international-finance director at the Fed and now global head of international economics at Citigroup Inc. in New York. He likened it to former Fed Chairman Paul Volcker’s 1979 vow to use extreme measures to smother annual inflation approaching 12%. “Kuroda is saying, ‘I’m going to target the base and I’m going to defeat deflation finally.’”
Kuroda earned plaudits from Fed Vice Chairman Janet Yellen, who said Japan’s stimulus “is in their own best interest.”
“It’s something that, if successful, will be good for stimulating growth in the global economy and will be good for us too,” Yellen said yesterday in response to audience questions after a speech in Washington.
Kuroda’s boldness echoes that of Draghi, who has abandoned taboos long held by European policy makers as the region’s debt crisis threatened to break the euro apart. In July, Draghi declared that the ECB was prepared to buy unlimited quantities of government bonds if that meant saving the euro.
At the same time, Draghi’s pledge is tied to conditions so stringent that no country has yet asked him to print money on its behalf, and the euro region’s economy is still mired in recession. Unemployment rose to 12% in February, the highest since records started in 1995, and the economy has contracted for five straight quarters. The euro area is also still vulnerable to flare-ups such as last month’s bungled bailout of Cyprus that threaten a resumption of turmoil.